Share

Vijaya Ramachandran

On December 15th the Millennium Challenge Corporation (MCC), an innovative U.S. aid agency, is set to announce which countries will receive its unique development assistance. Casey Dunning, policy analyst at CGD and my guest on this week’s Wonkcast, provides insight and recommendations on how these countries will (and should) be selected. I catch Casey shortly after her return from Honduras, where she saw firsthand the positive impacts of an MCC compact on rural development and highway construction.

For those who are less familiar with the corporation, Casey explains how the MCC was officially mandated in 2003 to push the boundaries of how aid is delivered to developing and low-income countries. The MCC offers five-year compacts to developing countries on the basis of how well they perform in three performance categories—ruling justly, investing in people, and economic freedom. The funds that make up each compact are obligated in full to the recipient country at the beginning of each five-year period.

Casey explains how the performance indicators that make up a country’s MCC scorecard don’t just determine which countries are selected, but they also provide an incentive for countries to improve their own performance.

"The MCC compact is really an MCC seal of approval,” explains Casey. “This means not only is the country eligible for MCC funds, but it also means the U.S government has said this country has high marks in these development areas, and they’re watching very closely to make sure they maintain these high marks. So it’s not just MCC money that can be cultivated out of these indicators, it’s other investments as well.”

I ask Casey about Honduras’s most recent compact, and if the country’s 2009 coup affected its ability to carry out the compact and finish its development projects. Casey explains that the coup complicated who exactly would work with the MCC with in Honduras and how and if the compact would be carried out. In the end, she says, Honduras was surprisingly able to hit almost all their compact targets.

Honduras’s compact included more than $200 million dollars for rural development and highway and road construction. While in Honduras, Casey was able to see the roads built under the MCC compact and meet with farmers who had undergone the MCC’s farmer training and development program. Casey shares with me a few anecdotes from her trip which highlight the MCC’s success in Honduras.

“I was taken on the roads, and it was extremely impressive what was done,” Casey tells me. “The MCC was building a portion of the road and another donor was doing a tandem portion. The MCC’s portion was smooth and included signage and paint, whereas the other donor’s portion had a house right in the middle of the road. Their portion hadn't been completed because the donor hadn't done the due diligence to make sure resettlement was taken care of. They had started two years before the MCC and still hadn't finished, whereas the MCC had completed the entire portion. “

Casey also tells me about a farmer who had undergone MCC’s farmer training and development program. The farmer she met with had switched from carrots—a low-value crop, to cucumbers—a high-value crop, and was able to use newly acquired business and market skills to reach an income of $2,000 per hectare, while the national average income is $1,800. This farmer was then able to buy more land and hire new employees.

Given the current debt and deficit crisis in the United States, I ask Casey if the MCC will be able to continue with this type of work and credibly commit to five-year contracts despite cuts in the foreign aid budget. Casey explains that the House and Senate have the same appropriation levels for the FY12 MCC budget, and while it is smaller than hoped for, the corporation will still be able to honor several five-year contracts—though they may be smaller and less plentiful.

We conclude the Wonkcast by discussing Casey’s most recent paper, the MCA monitor’s annual selection predictions. The annual report looks at performance on the policy indicators, makes predictions on which countries the MCC is likely to choose, and offers some analysis on the correctness of the choices. In this year’s report, Casey pushes for increased transparency in the board’s decisions.

I ask Casey if there will be any contentious issues in this selection round. She explains that while she hopes Honduras will receive a compact, it may be hanging in the balance because of its corruption score, which falls on the median. Casey argues that Honduras should still receive a compact because of its strong performance in other areas, and because the corruption score is statistically indistinguishable from a country whose corruption score is above the median.

“Everything else is there,” Casey says. “If they do not get a compact because of their corruption score that is right on the margin, I think that’s where we need to step back and rethink the indicators because indicators are a good guide but they aren't everything, so you need to use discretion.”

If you have iTunes, you can subscribe to get new episodes delivered straight to your computer every week. My thanks to Alexandra Gordon for her production assistance on the Wonkcast recording and for assistance in drafting this blog post.